Lloyds TSB's 2007 profits fall 6%

Lloyds TSB's focus on the UK helps it weather global problems

High Street bank Lloyds TSB has reported a 6% fall in annual profits, and increased the value of investments written off because of market turmoil.

Pre-tax profit was £4bn in 2007, down from £4.25bn in 2006. Write-downs increased to £280m from £200m.

However, when the sale of businesses including Abbey Life is included, and market volatility taken into account, profits rose 6%, the lender explained.

Lloyds TSB also raised its dividend by 5% to 35.9p, helping lift its shares.

Lloyds TSB shares were trading 4.3% higher at 455.5 pence in London.

'Lower risk'

Lloyds TSB said it had limited exposure to investments affected by the tightening in credit conditions.

"Our lower risk strategy limited the impact of the abrupt change in the markets," chief executive Eric Daniels said.

"Consequently, our charge was relatively modest in comparison to our balance sheet size, our earnings and the charges taken by many other organisations."

Lloyds has proved to be something of a safe harbour amid the global storm Richard Hunter, Hargreaves Lansdown Stockbrokers See Lloyds TSB's share price

Sandy Chen, a banking analyst with Panmure Gordon, said that the size of the write-downs was "relatively mild".

He added that the bank's business strategy meant that there was a minimal chance of the large problems that had blighted other lenders.

Mr Chen said that its total potential exposure was "roughly a tenth of those that we would expect at some peers".

Earlier this week, Barclays announced a write-down of £1.6bn on investments, due to turbulence in global markets.

Outlook 'uncertain'

The level of arrears on mortgages and loans fell compared with 2006 and Lloyds TSB reduced the amount it had set aside to cover bad debt.

"Whilst the economic outlook for 2008 is uncertain," the company said, it did not expect to have to increase its provision for bad debt this year.

Profits at the General Insurance business fell 47%, largely due to an increase in bad weather-related claims of £113 million.

In 2007, one million new customers opened accounts with the bank. It is the UK's largest provider of current accounts and personal loans.

"Lloyds has proved to be something of a safe harbour amid the global storm," said Richard Hunter of Hargreaves Lansdown Stockbrokers.

"Even allowing for the cost of the credit crunch, the results have reiterated the defensive nature of a largely UK-focused bank.

"And the growth in the core UK retail banking operation has comfortably offset the wholesale slowdown," he explained.